Sunday, February 05, 2017

On Thursday I wrote Some Random Concerns and Observations .... One of my observations was that after the election, many analysts thought the priorities of the new administration would be tax cuts, infrastructure spending, and deregulation. And the analysts thought that the negative economic policies on immigration and trade would be delayed until at least 2018. So far the new administration has delayed the policies with potential short term economic benefits - and pushed the negative policies.

The policy halo effect that provided ballast to the stock market and fueled investor optimism is already being dimmed by political realities, according to Goldman Sachs, which may have negative implications for economic growth.

In a note to clients on Friday, the investment bank noted President Donald Trump's agenda was already running into bipartisan political resistance, with doubts growing about potential tax reform and a repeal of the Affordable Care Act, among other marquee Trump administration initiatives.

Here are a few excepts from the Goldman Sachs note by economist Alex Phillips mentioned in the CNBC article:

• The Trump Agenda presents risks in both directions; tax cuts and infrastructure funding could boost growth but could be offset by the negative effects of restrictions on trade and immigration.

• Following the election, the positive shift in sentiment among investors, business, and consumers suggested that the probability of tax cuts and easier regulation was seen to be higher than the probability of meaningful restrictions to trade and immigration.

• One month into the year, the balance of risks is somewhat less positive in our view, for three reasons. First, the recent difficulty congressional Republicans have had in moving forward on Obamacare repeal does not bode well for reaching a quick agreement on tax reform or infrastructure funding, and reinforces our view that a fiscal boost, if it happens, is mostly a 2018 story.

• Second, while bipartisan cooperation looked possible on some issues following the election, the political environment appears to be as polarized as ever, suggesting that issues that require bipartisan support may be difficult to address.

• Third, some of the recent administrative actions by the Trump Administration serve as a reminder that the president is likely to follow through on campaign promises on trade and immigration, some of which could be disruptive for financial markets and the real economy.